Bitcoin Layer 2 scaling solutions, particularly Rollups, have been a hot topic among developers in the cryptocurrency space as a method to make Bitcoin payments cheaper and faster while maintaining decentralization. However, a report released by Galaxy Research on Friday argues that the vast majority of Bitcoin Rollups will be unable to survive due to expensive costs.
(Background: The founder of Mempool has harshly criticized Bitcoin L2 for having the “Seven Deadly Sins of Money-Swindling”! The founder of Ordinals agrees: It’s a fact.)
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Bitcoin Layer 2 scaling solutions also utilize the commonly used Rollups, which require sufficient data to be published to the main chain so that anyone running a regular Bitcoin node can reconstruct the latest state of the Rollup network at any time. However, Galaxy Research’s report released on Friday indicates that due to transaction fees, Bitcoin Rollups require millions of dollars annually to sustain operations.
High Costs of the Bitcoin Network
Galaxy Research points out that Rollups publishing data to the Bitcoin base layer will face a significant issue regarding the cost of data publication. Bitcoin’s block space is extremely scarce, with each block having a storage capacity of only 4MB, and each individual data publication transaction can occupy up to 400KB (0.4MB) of block space, effectively taking up 10% of an entire block.
With multiple Rollups competing, it is anticipated that data will be published every 6 to 8 blocks, potentially driving base layer fees to new highs and making small transactions prohibitively expensive. Given the competition for block space, only those Rollups that can generate the most fee revenue and pay block fees will be able to sustain operations.
Galaxy Research estimates that under a low-fee environment, where the typical transaction cost is 10 sat/VB, Rollups will incur a monthly cost of $460,000. In a high-fee environment of 50 sat/VB, driven by active Ordinals or tokens minted via Runes or the BRC-20 standard, monthly costs could reach up to $2.3 million.
Can BOB Solve the Problem?
Of course, this estimation is based on the current technical limitations of existing solutions. According to a report by Decrypt, an emerging Bitcoin Rollups project called “Build on Bitcoin” (BOB) claims to potentially resolve this issue. This is a hybrid Layer 2 solution that combines Bitcoin and Ethereum; currently, BOB operates as an Ethereum Layer 2, providing fast and nearly free transactions, but it is set to upgrade to directly incorporate Bitcoin in the future.
Alexei Zamayatin, co-founder of BOB, tweeted that he believes Bitcoin Rollups can be as inexpensive as Ethereum Rollups, but argues that Bitcoin’s main chain should not be used to obtain data. He suggests utilizing Celestia or Bitcoin sidechains to achieve this purpose, although this option may compromise Bitcoin’s complete decentralization and security:
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